Although the days data was nearly as thin as the trade, Treasury speculators were placing bets on higher bonds and notes in the coming days. Most of the buying came before and immediately following a 3 and 6 moth bull auction. As has been the trend, U.S. backed debt is still in demand.
The Treasury auctioned $32 billion in 3-month bills at 0.19% with a bid to cover of 3.35 and another $31 billion in 6-month bills at .285% with a 3.60 bid to cover. Investors don't seem to be turned off by the next to nothing yields but as paltry as they are, it wasn't too long ago that Treasury buyers were willing to pay a yield in order to have the privilege of the government's AAA rating.
Leading indicators was reported better than expected at a gain of .7%. Analysts were looking for .5% while the previous reading was 1.3%. Although the news was bearish, the market seemed to have already priced it in the data before it was released.
Corporate earnings have been generally positive, and therefore equities have managed to force their way higher. Naturally, this has put pressure on bond and notes but both markets seem to be nearing a near-term turning point. Even so, picking the apex in any market can be a challenging task and there is no way to ensure that we are right about the market's direction therefore traders should give themselves ample amount of room for error. For instance, this morning we liked the idea of selling August puts against the September 30-year bond in the 109 and 110 strike prices. The 109 could have been sold for 23 or 24 ticks while the 110 may have collected a little over 30.
In Friday's newsletter, we mentioned strong support at 115'20 with the mid-115's possible. So far, this assumption has held true. Nonetheless, if the upside in Treasuries is going to continue we will need to see some back and filling in the equity market. If this is the case, I don't see meaningful resistance in the long bond until we reach the mid-118's.
The 10-year note needs a close above 117 in tomorrow's session to confirm the recovery. If this is the case, we could see 119 again.